Analysts warned Chewy Inc needed to do more to showcase its potential after the pet food retailer’s surprise fourth-quarter profit was overshadowed by a mixed outlook.
Chewy reported per-share earnings of US$0.07 for the fourth quarter on Wednesday evening, outdoing analysts’ expectations for a US$0.04 loss, on the back of a 4% jump in revenue to US$2.83 billion.
However, warnings that the pet industry was set to grow at a slower rate next year, before normalising in 2025 following a pandemic-fuelled boom, pushed Chewy shares down 6.3% on Thursday.
“At first glance, Chewy's profitability story appears to be taking shape,” Jefferies analysts noted following the update.
However, “a significant portion of 2024 expected margin progression will stem from an increase in non-cash items, not operational improvements,” the bank continued.
“This is discouraging. Growth remains slow on industry spending pressures and investment continuing, more needs to be done to show the business has underlying profit potential.”
The bank cut Chewy’s full-year pre-tax earnings estimates as a result, alongside reducing its share price target to US$25, which would mark a jump of 41% on Wednesday’s close.
“We're positive long-term but expectations for pet ownership trends to modestly improve in the second half may be optimistic,” analysts added.
Customer numbers will likely remain flat at 20 million over the coming years as a result, with Jefferies guiding for a 5% increase in 2024 sales to US$11.7 billion.